Question

Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of Morrow Enterprises Inc., with balances on January 1, 2016, are as follows:
Common Stock, $20 stated value (500,000 shares authorized, 375,000 shares issued) $ 7,500,000
Paid-In Capital in Excess of Stated Value—Common Stock 825,000
Retained Earnings 33,600,000
Treasury Stock (25,000 shares, at cost) 450,000
The following selected transactions occurred during the year:
Jan. 22 Paid cash dividends of $0.08 per share on the common stock. The dividend had been properly recorded when declared on December 1 of the preceding fiscal year for $28,000.
Apr. 10 Issued 75,000 shares of common stock for $24 per share.
Jun. 6 Sold all of the treasury stock for $26 per share.
Jul. 5 Declared a 4% stock dividend on common stock, to be capitalized at the market price of the stock, which is $25 per share.
Aug. 15 Issued the certificates for the dividend declared on July 5.
Nov. 23 Purchased 30,000 shares of treasury stock for $19 per share.
Dec. 28 Declared a $0.10-per-share dividend on common stock.
31 Closed the credit balance of the income summary account, $1,125,000.
31 Closed the two dividends accounts to Retained Earnings.
Required:
A. Enter the January 1 balances in T accounts for the stockholders’ equity accounts listed.
B. Journalize the entries to record the transactions, and post to the eight selected accounts. No post ref is required in the journal. Refer to the Chart of Accounts for exact wording of account titles.
C. Prepare a retained earnings statement for the year ended December 31, 2016.

Answer 1

Answer:

Morrow Enterprises Inc.

A. January 1 balances in T-accounts:

                                         Common Stock

                                                Jan. 1     Balance b/d        $7,500,000

                                        Additional Paid-in Capital -Common Stock

                                                Jan. 1     Balance b/d        $825,000

                                        Retained Earnings

                                                Jan. 1     Balance b/d        $33,600,000

                                        Treasury Stock

Jan. 1  Balance b/d $450,000

B1. Journal entries to record the transactions:

Jan. 22

Debit Dividends Payable $28,000

Credit Cash Account $28,000

To record payment of $0.08 dividends per share.

April 10

Debit Cash Account $1,800,000

Credit Common Stock $1,500,000

Credit Additional Paid-in Capital $300,000

To record the issue of 75,000 shares for $24 per share.

June 6

Debit Cash Account $650,000

Credit Treasury Stock $450,000

Credit Additional Paid-in Capital $200,000

To record reissue of 25,000 shares of treasury stock at $26 per share and close the Treasury Stock balance to Additional Paid-in Capital.

July 5

Debit Stock Dividends $450,000

Credit Dividends Payable $450,000

To record the declaration of the 4% stock dividend on 450,000 shares of common stock.

August 15

Debit Dividends Payable $450,000

Credit Common Stock $360,000

Credit Additional Paid-in Capital $90,000

To record the  issue of a 4% stock dividend certificates on 450,000 shares at $25

Nov. 23

Debit Treasury Stock $570,000

Credit Cash Account $570,000

To record the purchase of 30,000 shares of treasury stock for $19 per share.

Dec. 28

Debit Dividends $42,000

Credit Dividends Payable $42,000

To record the declaration of a $0.10 per share dividend on 420,000 shares of common stock.

Dec. 31

Debit Income Summary Account $1,125,000

Credit Retained Earnings $1,125,000

To close the credit balance of the income summary.

Dec. 31

Debit Retained Earnings $492,000

Credit Stock Dividends $450,000

Credit Dividends $42,000

To close the two dividends accounts.

B2) Posting to the selected accounts:

                                        Common Stock

Dec. 31 Balance c/d  $9,360,000 Jan. 1    Balance b/d         $7,500,000

                                                        Apr. 10  Balance b/d         $1,500,000

                                                       Aug 15  Dividend Payable  $360,000

                                  $9,360,000                                          $9,360,000

                                                        Jan. 1 Balance b/d           $9,360,000

                                        Additional Paid-in Capital -Common Stock

Dec. 31 Balance c/d $1,415,000 Jan. 1   Balance b/d               $825,000

                                                   Apr. 10     Balance b/d            $300,000

                                                   Jun. 6   Treasury Stock         $200,000

                                                 Aug 15  Dividend Payable       $90,000

                                $1,415,000                                               $1,415,000

                                                   Jan. 1 Balance b/d                $1,415,000

                                        Retained Earnings

Dec. 31 Stock Dividends   $450,000 Jan. 1    Balance b/d       $33,600,000

Dec. 31 Dividends               $42,000 Dec. 31  Income Summary $1,125,000

Dec. 31 Balance c/d     $34,233,000                                                              

                                    $34,725,000                                          $34,725,000

                                                           Jan. 1 Balance b/d           $34,233,000

                                        Treasury Stock

Jan. 1      Balance b/d $450,000  Jun. 6 Cash                          $450,000

Nov. 23  Cash            $570,000   Dec. 31 Balance c/d             $570,000

                                $1,020,000                                               $1,020,000

Jan. 1   Balance b/d   $570,000

                                        Dividends Payable

Jan. 22  Cash                    $28,000  Jan. 1 Balance b/d             $28,000

Aug. 15 Common Stock $360,000   Jul. 5 Stock Dividends   $450,000

Aug. 15 Additional Paid-in$90,000   Dec. 23 Cash Dividends $42,000

Dec. 31 Balance c/d          $42,000                                                          

                                       $520,000                                          $520,000

                                                           Jan. 1 Balance b/d           $42,000

                                        Stock Dividends

Jul. 5 Dividends Payable $450,000 Dec. 31 Retained Earnings $450,000

                                      Cash Dividends

Dec. 28 Dividends Payable $42,000 Dec. 31 Retained Earnings $42,000

 

                                       Income Summary Account

Dec. 31  Retained Earnings $1,125,000 Dec. 31 Balance b/d   $1,125,000

C. Retained Earnings Statment for the year ended December 31, 2016:

Beginning Balance     $33,600,000

Income Summary           $1,125,000

Stock Dividends             ($450,000)

Cash Dividends               ($42,000)

Ending Balance         $34,233,000

Explanation:

a)                                       Cash Account                                                            

Apr. 10   Common Stock  $1,500,000 Jan. 22  Dividends Payable$28,000

April 10  Additional Paid-in $300,000  Nov. 23 Treasury Stock   $570,000

Jun. 6    Treasury Stock     $450,000  

Jun. 6    Additional Paid-in $200,000